Consumers are more optimistic about buying and selling

A Fannie Mae economist expects home sales activity to pick up this year as mortgage rates fall. Already, more consumers are indicating that now is a good time to buy.

WASHINGTON – The Fannie Mae Home Purchase Index (HPSI) rose 3.2 points in June to 72.6, rebounding from last month's dip and returning the index closer to the level it set earlier this year.

This month, 19% of consumers said it was a good time to buy a home, compared to 14% in May, which was a new low in the survey. The share that believes it is a good time to sell also rose, rising from 64% to 66%. Larger shares of consumers also indicated a belief that home prices and mortgage rates would rise over the next 12 months. Among the components of household finances, the percentage of consumers expressing a sense of job security jumped to 79%, an increase of 4 percentage points compared to May. The full index rose by 6.6 points from year to year.

"Concerns about affordability remain the primary driver of consumer sentiment for housing, even as top-line findings from our monthly survey showed a modest increase in optimism for both home buying and home selling conditions," said Mark Palim, Fannie Mae vice president and chief economist.

"If mortgage rates fall by the end of the year, as we now expect, we think home sales activity will pick up, but progress on this front is expected to be slow due to the ongoing imbalance between supply and demand. A significant majority of consumers continue to tell us it's a 'bad time' to buy a home, and they also tell us they expect both house prices and mortgage rates to rise over the next 12 months. Taken together, in our view, this leaves little upside for general sentiment until significant progress is made on affordability - most likely in the form of lower fares or improved supply. Of course, the other side of a difficult buying market is an advantageous selling market, and the respondents also maintained their position that it is usually a good time to sell, and pointed to the high house prices as the main reason."

Home buying sentiment index - highlights on the components

Fannie Mae's Home Purchase Index (HPSI) rose 3.2 points in June to 72.6. The HPSI index increases by 6.6 points compared to the same period last year. 

Good/bad time to buy: The percentage of respondents who say it's a good time to buy a home rose from 14% to 19%, while the percentage who say it's a bad time to buy fell from 86% to 81%. As a result, the net share of those who say it's a good time to buy rose 9 percentage points month over month.

Good/bad time to sell: The percentage of respondents who say it is a good time to sell a home increased from 64% to 66%, while the percentage who say it is a bad time to sell decreased from 35% to 33%. As a result, the net share of those who say it's a good time to sell rose 4 percentage points month over month.

House price expectations: The percentage of respondents who say that house prices will increase in the next 12 months has increased from 42% to 45%, while the percentage who say that house prices will decrease has decreased from 18% to 17%. The share that thinks house prices will remain the same has dropped from 40% to 36%. As a result, the net share of those who say home prices will rise in the next 12 months rose 3 percentage points month over month.

Expectations for the mortgage interest rate: The percentage of respondents who say that the mortgage interest rate will decrease in the next 12 months has decreased from 25% to 24%, while the percentage expecting an increase in the mortgage interest rate has increased from 31% to 33%. The part that thinks mortgage interest rates will remain the same remains unchanged at 42%. As a result, the net share of those who say mortgage rates will fall over the next 12 months fell by 2 percentage points month over month.

Worry about job loss: The percentage of respondents who said they were not worried about losing their job in the next 12 months rose from 75% to 79%, while the percentage who said they were worried dropped from 24% to 20%. As a result, the net share of those who say they are not worried about losing their jobs rose 8 percentage points month over month.

Household income: The percentage of respondents who say that their household income is significantly higher than it was 12 months ago decreased from 20% to 16%, while the percentage who say that their household income is significantly lower decreased from 12% to 10%. The percentage who say their household income is roughly the same rose from 67% to 72%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago fell 2 percentage points month over month.

on Fannie Mae's home buying sentiment index

The Home Purchase Index (HPSI) distills information on consumer home purchase sentiment from Fannie Mae's National Housing Survey (NHS) into one number. The HPSI reflects consumers' current views and future expectations about housing market conditions and complements existing data sources to inform housing-related analysis and decision-making. The HPSI is made up of answers to six NHS questions that ask for consumers' assessments of housing market conditions and address issues related to their home buying decisions. The questions ask consumers whether they think it's a good or bad time to buy or sell a home, which way they expect housing prices and mortgage interest rates to move, how worried they are about losing their jobs and whether their incomes are higher than they were a year ago.